3 signs your biggest contract might be losing you money
For many IT consultancies and MSPs, landing a “big” contract feels like a milestone. It validates the business, creates stability, and gives the founder confidence that growth is on track.
But here’s the uncomfortable truth: sometimes your biggest client is the one that’s silently eroding your margins. What looks like a success story on the top line can actually be a hidden drag on your profitability and growth.
So how can you tell?
Delivery Hours Always Creep Up
That fixed-price contract that looked great on paper? Your team ends up delivering far more hours than you scoped. Engineers are firefighting, SLAs are stretched, and overtime becomes the norm.
Why this happens:
Over-promising during sales negotiations.
Lack of proper scope creep controls.
Reactive support culture (saying yes to every client request).
What to think about:
Track actual hours vs budgeted hours, and review at least quarterly. If the contract is chronically over-serviced, either reprice, restructure, or renegotiate.
Cashflow Feels Worse, Not Better
Big contracts often mean longer payment terms (30–60 days). Meanwhile, you’re paying staff every month, or even weekly. The result? Your cash position actually weakens even as revenue rises.
Why this happens:
Clients dictate payment terms.
Misalignment between income schedule and payroll.
Lack of cashflow forecasting.
What to think about:
Model working capital impact before signing contracts. Negotiate upfront payments or milestone billing where possible. Cashflow forecasting should be as routine as payroll.
Your Team Is Over-Reliant on the Client
When one client takes 30-40% of turnover, the business becomes fragile. If margins are already tight, losing them would be catastrophic. Even if they stay, they often “dictate terms”, squeezing your profitability further.
Why this happens:
Too many eggs in one basket (concentration risk).
Lack of structured sales pipeline.
Fear of saying no to unreasonable client demands.
What to think about:
Monitor revenue concentration, no single client should exceed 20% of turnover. Invest in a diversified client portfolio so growth isn’t hostage to one relationship.
The Bigger Picture
These profitability traps all stem from the same root cause: lack of visibility into contract economics.
As the owner, you need to be asking:
Which contracts are truly profitable once delivery hours, rework, and cash impact are factored in?
Are we pricing based on value, or are we still stuck in cost-plus mode?
Is this contract building enterprise value, or just keeping us busy?
The most successful MSPs don’t just grow revenue. They grow profitable, predictable revenue. That’s what builds resilience today and valuation tomorrow.
At Shadwell Associates, we help owner-managed IT consultancies and MSPs uncover the truth behind their numbers, so they can scale without hidden profit leaks.